Note 12 - Intangible non-current assets

Along with goodwill impairment testing, estimates are made of the recoverable amount based on the future cash flow that the asset is judged to be able to generate. Value of future cash flow significantly depends on the applied interest rate. Assumptions and assessments that were done with the impairment test in 2006 are described below.

When the operations' cash flows are forecasted without accounting for financial items, the applied interest rate for discounting cash flows reflects the weighted capital cost for shareholders' equity with loan financing after tax, i.e., the weighted average cost of capital (WACC). To determine the WACC, these factors must be estimated:

• Net debt/equity ratio (financing mix)
• Return on investment demands on shareholders' equity
• Cost of long-term loan financing

Cybercom decided to always finance with shareholders' equity. Cybercom has few tangible assets. A comparison with other companies supports 100% financing with shareholders' equity.

The return-demand level on shareholders' equity is normally based on the capital asset pricing model (CAPM); so return demand is based on risk-free interest, with addition of a risk premium.

The risk-free interest rate is equal to 10-year government bonds, about 4% (3%).

The risk premium comprises:

• General compensation for share-investment risks. This market risk premium was estimated to be about 4%, which is unchanged from last year.
• A weighting up or down for current investment risk, relative to the market average. This factor was estimated to be about 1.3.
• A supplement considering the company's size and a specific, risk-condition supplement. In Cybercom's case (besides size-related supplement), this means, e.g., an insufficient track record to support positive future financial trends and special dependent relationships (primarily customers and key people). Together, these supplements were estimated to about 2% (3.5 percentage points lower than previous years, based on the company's performance last year).

The total projected interest rate (median value in the above interval) before tax was based on the above factors and estimated to be:
4% + 1.3 x 4% + 2% = 11%

Considering the above information, there is no impairment loss.